Yield Tracker

YIELDS ON government securities dipped last week amid lower inflation expectations, even as local players monitor external developments.
On average, yields — which move opposite to prices — slid by 5.82 basis points (bp) week on week, data from the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of Nov. 29 published on the Philippine Dealing System’s Web site showed.
Ruben Carlo O. Asuncion, chief economist at the UnionBank of the Philippines, pointed to expectations of easing inflation as one factor that led the decline in yields on most tenors.
“There were two major issues…[last] week important to yield movement. One is the perception that inflation pressures have significantly subsided as food and fuel prices continue to decline,” Mr. Asuncion said in an email.
“Another is the continuing tug of the US-China trade war lending much credence to the consensus expectations that the global economy will considerably slowdown as this bilateral trade concerns between the world’s two biggest economies continue to unfold,” he added.
Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), agreed: “The continued decline in long-term PHP BVAL yields was largely brought about by expectations of lower inflation amid the sharp decline in global crude oil prices to new 13-month lows, stronger peso exchange rate (best in nearly 6 months), and easing prices of food/rice.”
“Federal Reserve Chairman Jerome Powell signalled that US interest rates are closer to neutral level versus the previous statement a month ago, a more dovish signal that could reduce the odds of Fed rate hikes especially in 2019.”
Jonathan L. Ravelas, chief market strategist at BDO Unibank, Inc. , shared the same view, noting that lower oil prices, normalized rice supply, and peso appreciation pushed yields lower last week.
At the secondary market on Friday, all tenors at the short end saw yields increase week on week. The rates of the 91-, 182-, and 364-day Treasury bills went up by 4.6 bps, 4.6 bps, and 0.30 bp, respectively, to fetch 5.448%, 6.217%, and 6.602%.
Meanwhile, at the belly, the three-, four-, five- and seven-year Treasury bonds saw their rates decline by 0.60 bp, 2.5 bps, 5.5 bps and 11.2 bps, respectively, to end at 6.865%, 6.936%, 6.975% and 6.999%. Only the two-year bond gained, rising 0.50 bp to fetch 6.738%.
At the long end, the 10-, 20- and 25-year bonds also saw their yields go down 10.6 bps, 19.9 bps and 23.7 bps, respectively, to end with 7.029%, 7.612% and 7.708%.
“November inflation is expected to be lower than last month. Thus, I am expecting that yields will tend to be higher,” said UnionBank’s Mr. Asuncion.
For RCBC’s Mr. Ricafort, “[This] week, long-term PHP BVAL yields could continue to ease, especially if the latest Philippine inflation data to be released on December 5, would be lower than market expectations and if the peso exchange rate continues to strengthen as this could help in further reducing inflation.”
Meanwhile, BDO’s Mr. Ravelas said he expects rates to move “sideways to down in the near-term.” — Lourdes O. Pilar

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